If it’s not one thing, it’s the other.
For Joy Global (JOY), all things have been seemingly bearish impediments for the last four years and counting. But while the end game may not be finished, bulls look to finally have a nice opportunity to profit from JOY stock courtesy of an extreme situation and a less extreme option strategy.
For Joy Global, a mining equipment specialist, it’s been another difficult year for business and for JOY shareholders. Factors helping dig shares of JOY stock into a massive yearly hole of around 40% in 2015 center on weakened hard commodity prices.
A Barron’s article notes that JOY shares are particularly stressed by Joy Global’s weakened South American commodity customer Cia Siderurgica (SID) and JOY’s shrinking revenue stream from its mining customers in the maligned coal industry.
Putting those pressures off to the side, let’s just focus on the price chart of JOY stock. For the first time in an awfully long time, an oversold condition looks ripe for bulls to profit in Joy Global — at least temporarily.
Let me explain.
Joy Global Weekly Chart
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More important, what we currently view as very attractive technically are the last three weeks, wherein JOY stock has remained outside its lower Bollinger Band.
During the last four years, this type of short-term, oversold behavior has never occurred. As JOY stock is now in its fifth straight year of lower prices, that’s pretty significant.
Incidentally, Joy Global stock still holds a fairly high short interest of 16%, according to Yahoo Finance. While we’re not one to bet against that type conviction over the longer term, it could act as upside fuel in the next few weeks from JOY’s oversold condition.
Joy Global Long Call Strategy
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Overall, Joy Global’s option pricing appears fair enough as to entertain a straight-up long call position.
Checking the board, one contract that looks attractive (and contains Joy Global’s next earnings announcement in early September) is the Sep $31 call for 61 cents. With a starting delta of 25, the contract can double in price were JOY stock to merely push back inside the lower Bollinger band and signal a reversal candle by trading up through Monday’s highs of $30.77.
Our initial expectation for the stock, while it would require a move of about 10%, nonetheless looks approachable given the oversold condition. For perspective, where I drew a horizontal line at a targeted $31 in Joy Global stock — were a move to that price level to occur, it certainly wouldn’t look like much on the chart.
While the move to $31 would look unimpressive, though, the Sep $31 call will have more than doubled in price were it to occur in the next couple weeks.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual.
